Government's Role: Public Sector & Economic Policy

Understanding the Public Sector

The public sector encompasses a nation's economic activities that fall within the governmental sphere.

Key Functions of the Public Sector

• Legislation: Regulating the activity of economic agents through the issuance of legal rules.
• Provision of Goods & Services: Producing or providing essential goods and services.
• Taxation: Exercised through the fixing and collection of taxes.
• Redistribution: Adjusting the distribution of income among people.
• Stabilization: Smoothing fluctuations in macroeconomic variables.

Structure of the Public Sector

Spatial Approach (EU Context)

Considering a spatial approach, especially within the EU, the public sector includes four levels:

• Supranational level
• National or central level
• Regional level
• Local level

Classification by Economic Function

Based on the primary economic function, entities can be classified into three types:

1. Public Administrations: Comprising central administration, territorial administration, and social security.
2. State-Owned Enterprises: Producing goods and services similar to those of private enterprises.
3. Credit Institutions: Engaging in financial transactions monitored by the government.

Economic Policy: Government Intervention

Economic policy refers to government intervention in a country's economic affairs to achieve certain objectives.

Purposes of Economic Policy

These represent the general aspirations a society intends to achieve.

Objectives of Economic Policy

Objectives are the economic quantification of the proposed purposes.

Economic Objectives

These aim to achieve general economic welfare through the pursuit of:

• Economic growth
• Full employment
• Stable prices
• Balance of payments equilibrium
• Equitable distribution of income and wealth

Social Objectives

These focus on increasing social welfare by improving areas such as:

• Education
• Health
• Environmental protection
• International cooperation

Instruments of Economic Policy

These are variables that governments can control and use to achieve their set objectives.

• Direct Instruments: Restrict the free functioning of markets.
• Indirect Instruments: Use the price system to alter market behavior through various measures.